What is the effect of recording a purchase of inventory on credit in the trial balance?
Practice Questions
1 question
Q1
What is the effect of recording a purchase of inventory on credit in the trial balance?
Increase in assets and increase in liabilities
Decrease in assets and increase in equity
Increase in liabilities and decrease in equity
No effect on the trial balance
Recording a purchase of inventory on credit increases assets (inventory) and increases liabilities (accounts payable).
Questions & Step-by-step Solutions
1 item
Q
Q: What is the effect of recording a purchase of inventory on credit in the trial balance?
Solution: Recording a purchase of inventory on credit increases assets (inventory) and increases liabilities (accounts payable).
Steps: 5
Step 1: Understand that when a business buys inventory, it gets more products to sell. This is an increase in assets.
Step 2: Recognize that if the purchase is on credit, the business does not pay cash immediately. Instead, it owes money to the supplier, which increases liabilities.
Step 3: Identify that the inventory account (an asset) will increase by the amount of the purchase.
Step 4: Identify that the accounts payable account (a liability) will also increase by the same amount, reflecting the debt to the supplier.
Step 5: Conclude that in the trial balance, the total assets will go up, and the total liabilities will also go up by the same amount.
